Comcast-Time Warner Cable Merger


Most of you know that I am basically optimistic about the future of the media and entertainment business in world of 5 Billion smartphones all serving up media content. But there is one aspect of the future that is potentially troubling which is the lack of competition in the Broadband business.

The proposed merger of the number one and two broadband providers (Comcast and Time Warner Cable) raises the specter of a single provider controlling 40% of all high speed broadband in the U.S. Comcast has made the argument that since each company operates a de facto monopoly in the individual cable markets that they serve, their merger would not change the competitive environment for the individual consumer. While it is true that a broadband duopoly is the standard in most major markets with a single cable provider and a single telco, this should not be cause for celebration. This duopoly provides us slower broadband at higher prices than almost any developed country in the world.

At the USC Annenberg Innovation Lab we have had a chance for the last two years to see what really fast broadband looks like. And no, we didn’t have to travel to Seoul, South Korea to experience the future. We go down to Chattanooga, Tennessee where we can test applications at 1 Gigabit per second over the EPB Fiber Network. EPB’s story points us towards a future where we may no longer have to worry about the Broadband Duopoly. EPB stands for the Electric Power Board of Chattanooga, a municipally owned utility. A few years ago the folks at Volkswagen told the Chattanooga city fathers they would like to build a high tech auto plant in their city. There was only one problem: they were in the middle of Tornado Alley and the electricity went out several times a year during the big storms. So EPB promised to build a smart grid so when a tree fell on the wires on Flynn St., only Flynn St would go dark, because the smart grid would route power around the trouble.

So they built the smart grid, Volkswagen built their plant and they haven’t had any down time. But once EPB had strung fiber optic cable to every light post they realized they were less than 100 feet from 50,000 homes if they wanted to sell broadband. Comcast, the local “incumbent” tried to stop them in the Tennessee legislature and once they started advertising “the fastest broadband in Chattanooga”, Comcast sent them cease and desist letters, suggesting their network could serve 100 MBPS if there was only one person on the line. So EPB turned the fiber up to 1 Gigabit per second and the cease and desist letters stopped. Now EPB is gaining market share for it’s $70 one gig service and Comcast is loosing market share with it’s old-fashioned cable broadband product.

So why is this story important to our country’s technological future? Because the Comcast-Time Warner Merger provides the country an opportunity to ignite true competition in the broadband market. Last month the new FCC Chairman, Tom Wheeler released a statement on “Open Internet Rules” in the wake of a Federal Court decision on Network Neutrality. In a section on enhancing competition he wrote, “one obvious candidate for close examination was raised in Judge Silberman’s separate opinion, namely legal restrictions on the ability of cities and towns to offer broadband services to consumers in their communities.” In the Federal Court case Verizon vs. FCC, Judge Laurence Silberman suggested that the FCC’s primary obligation was to promote competition and remove barriers to infrastructure investment. Those barriers have been constructed by the cable and telco incumbents and their lobbyists who have convinced over 20 state legislatures to pass bills barring municipalities from entering the broadband market. Judge Silberman described these laws as providing “an economic preference to a politically powerful constituency, a constituency that, as is true of typical rent seekers, wishes protection against market forces.”

So perhaps the FCC should rule that such local preemption is illegal and states cannot prevent cities or companies like Google Fiber from competing in the broadband market. Then as part of it’s merger approval decision Comcast would pledge that it and it’s lobbying arm, the NCTA would refrain from opposing the FCC decision. If that happened, the kind of broadband innovation we are seeing in cities like Chattanooga, Kansas City and Austin could spread throughout the country.

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